KSK Energy Ltd - Clarity emerging on fuel; Maintain Buy and Top pick - Emkay

Reco: BUY
CMP: Rs 66
Target Price: Rs 76

- 1Q13 loss at Rs23mn vs. PAT expectations of Rs450mn due to i) higher fuel cost on receipt of lower GCV coal at Wardha & price adj. to be done in 2Q/3Q - impact Rs200mn, ii) one time cost of Rs130mn in int. and iii) taxes higher by Rs190mn.

- Wardha recd lower GCV coal of 3500-3800Kcal vs. FSA for 4400-4700Kcal resulting in (1) 30-35% e-auction coal procurement and (2) pending price adjustment with CIL. We factor in lower GCV and resultant e-auction in our nos.

- Apart from lower GCV and resultant e-auction, other factors leading to variance in profit are non-recurring and adjustable. Thus, cut FY13/14E EPS (-10%) to factor e-auction coal.

- Recent positives - 1) linkage coal supply at Wardha, 2) linkage almost certain in lieu of Morga-II & 3) Gare Pelma III stage II clearance likely shortly. With reasonable certainty of 15%+ ROEs, stock is attractive at 0.6xFY13E book; Retain Buy.

Source : Equity Bulls

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